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Re: FHSS Scheme contributions, tax and timeframes

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Hi,

 

I've read some of the questions and seek further clarification please before I transfer large contributions into my Super.

 

From what I can see there are two ways to transfer money into the FHSS Scheme; concessional or non-concessional (excuse my ignorance, I haven't done any vol Super payments in the past).  The non-concessional option appears just to be a voluntary Super payment post-tax i.e. from my bank account, with no further tax withheld before or after entering my Super.  Since I'm in the $87,001 - $180,000 tax bracket it looks like this option isn't best for me.

 

The concessional option reads like it is salary sacrificed from my pay pre-tax and is then transferred to my Super where it is taxed at a concessional rate of 15%.  When I withdraw the money from Super to buy a house it is further taxed (withholding tax) at my marginal tax rate i.e. 37%, less a 30% tax offset equalling 7% in total.  Is that correct?  Or is it 37% less 11.1% (37*0.3=11.1%) equalling 25.9% in total?

 

So in my real world example - I transfer $15,000 for the FY as salary sacrifice from my pay to super pre-tax, then get charged 15% concessional rate leaving me with $12,750 in my Super account.  Two years later I apply to withdraw the funds of $12,750 and get additional withholding tax taken of 7% (marginal 37% less 30% offset) leaving me with $11858 to transfer for my house sale.  Is that approximately correct give or take a few dollars for rounding?  So I'd be saving approximately $2408 compared to if I just got taxed my marginal tax rate with my salary and put the money in the bank for the house sale?

 

When the FHSS Scheme rules state that $15,000 p/a and $30,000 max as limits I assume that means contribution amounts and not post-tax withdrawal amount at the end i.e. if I contributed $30,000 total across two FY's I may only be left with approx. $23,716 at the end for my house; I can't withdraw a further $6,284 from my Super to make up the difference to the $30,000 max? And how does contribution profits within the Super come into these limits?  I.e. if I left my $15,000 contribution ($12,750 after concessional tax taken) in Super for several years and say made a good profit of $7,000, can that $7,000 amount be withdrawn less the withholding tax rate of 7%?

 

I then read that I can only release 85% of concessional contributions... so with my $12,750 I could only get $10,837 which would then get taxed the 7% withholding tax leaving $10,079 to use for my house, is that correct?  The remainder stays in my Super (which isn't a bad thing of course but most people need all the cash that they can get to purchase houses these days)?

 

Can you also please give me some expected time-frames for how long it takes to:

1. transfer per-tax concessional contributions from salary sacrifice to appear in my super account (is it a couple weeks or a month or so)?

2. upon lodging the FHSS release application to get approval (I read it then takes 25 business days upon approval to get funds)?

Could I transfer my $15,000 salary sacrifice amount to Super on e.g. July 1 and hope to have the funds to sign a contract of sale on August 25 (allowing a couple of weeks for approval and 25 business days from approval to get funds)?  Do I also need to wait to see money in my Super account before applying for the release of funds?

 

Thanks in advance for your time.

Regards,

Sam

 

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Hi @swhite,

 

Thanks for your post.

 

You’ve raised a few points in your post so we've split the response into sections.

 

Types of super contributions:

 

There are two types of voluntary contributions you can make into your super fund for the FHSS scheme:

  • concessional contributions, and
  • non-concessional contributions.

Concessional contributions are before tax contributions.  These include contributions you make through a salary sacrifice arrangement or personal contributions that you claim as a tax deduction  These contributions are taxed at a concessional tax rate of 15% in your super fund. Concessional contributions can help to reduce your assessable income; in the case of salary sacrifice this is because your employer withholds PAYG tax on your after salary sacrifice income. If you make personal contributions and claim a tax deduction, then the amount you claim as a deduction reduces your taxable income in your tax return.

 

Non-concessional contributions are amounts you contribute to super after tax (e.g. you deposit money from your bank account into your super). Because you've already paid tax on these contributions, they’re not taxed when they go into the super fund and they’re not taxed when they come back out.

 

Working out how much you can withdraw from the FHSS:

 

When you submit a determination request using our online services, we'll work out your maximum release amount. The maximum release amount is:

  • 100% of your eligible non-concessional contributions,
  • 85% of your eligible concessional contributions, and
  • The associated earnings on both the concessional and non-concessional contributions.

We'll calculate your associated earnings based on a specified rate - so the associated earnings we calculate may be more or less than the actual amount you earned in super fund.

 

When calculating the amount you can withdraw, there is a limit of $15,000 of eligible contributions from each financial year, with a limit of $30,000 of contributions in total. Your associated earnings aren’t included in the $30,000 limit.

 

Say for example, you contribute the following amounts into your super in the 2018/19 and 2019/20 financial years:

  • $5,000 of non-concessional contributions, and
  • $10,000 of concessional contributions.

For this example we’ll say your associated earnings are $4,000.

 

This means your total maximum release amount would be $31,000 ($27,000 of contributions plus $4,000 associated earnings).

 

The $27,000 is comprised of:

  • 100% of the non-concessional contributions ($5,000 for 2018/19 plus $5,000 for 2019/20), and
  • 85% of the concessional contributions ($8,500 for 2018/19 and $8,500 for 2019/20).

The concessional contributions are limited to 85% to take into account that they've already had 15% tax withheld from them while they were in your super fund. 

 

We’ll also calculate the tax that will be withheld from your assessable FHSS amounts. The assessable FHSS amount is the concessional contribution amount and the associated earnings.

 

In the above scenario, your assessable FHSS amount would be $21,000:

  • $8,500 concessional contributions from 2018/19
  • $8,500 concessional contributions from 2019/20, and
  • $4,000 of associated earnings

The tax rate we apply will be your marginal tax rate however you'll receive a 30% tax offset. The calculation of your marginal tax rate is only an estimate based on your previous tax returns - we can’t calculate your actual marginal tax rate until you lodge your tax return for the financial year. If you’re marginal tax rate is estimated as 39% (37% plus the Medicare levy), then the 30% tax offset will be subtracted from this amount, meaning a rate of 9% tax will be withheld from your assessable FHSS amount. If we're unable to work out your estimated marginal tax rate, we'll apply a rate of 17% (this is highest marginal rate minus the 30% tax offset).

 

So in the above example, the tax rate of 9% would be applied to the $21,000 which equals $1890.

 

You’ll need to make sure all your contributions have been made to the fund before you request your determination as you’ll need to provide the date the contribution was made.  If you’re salary sacrificing, this date may be different to when the amount was deducted from your salary and wages.

 

You can request multiple determinations from us so you can see how much you're able to withdraw.


Requesting a withdrawal of your FHSS amounts:

 

Once you’re ready to withdraw your FHSS amounts, you’ll need to request a release. You can do this electronically through our online services.

 

Once you request a release, we’ll send a request to your nominated super fund(s) asking them to pay your requested amount to us.  When we receive the money, we’ll withhold the calculated tax and offset any outstanding Commonwealth debts you have before we pay the remainder to you. Your released  FHSS amounts won’t be offset against any HECS/HELP loan balance you have with us

 

The estimated time frame for you to receive your money is 25 business days.

 

So using the above example and assuming you don’t have any outstanding Commonwealth debts, the amount you would receive is $29,110 ($31,000 - $1890).

 

The example I’ve used is very simple but hopefully this helps clarify how the maximum amount you can withdraw is calculated and how the tax will apply.

 

You’ll need to wait until the funds are released to you before you sign a contract to buy or build a residential property.  If you apply for your release through our online services, you’ll be able to check the progress of your release request and view the date we release your funds to you.  Once we release your funds, it may take a few days to show up in your bank account.

 

If you sign a contract before we release the funds to you, you’ll be liable to pay the FHSS tax which is a flat rate of 20% of your assessable FHSS released amount.

 

I’ve included a few other things you’ll need to consider when working out if the FHSS scheme is right for you…

  • The contributions you make to your super towards the FHSS scheme are not a new type of contribution. This means the existing contribution caps for concessional and non-concessional contributions still apply. You can find more information about the contributions caps on our website.
  • If you’re considering entering a salary sacrifice arrangement, there are a few things you need to consider, including the impact your salary sacrificed amount has on the compulsory super guarantee (SG) contributions your employer needs to pay. There is also no time frame under the SG legislation as to when your employer needs to pay your salary sacrifice amounts which are above the compulsory SG contributions.
  • Salary sacrifice contributions you make which are above the compulsory SG contributions and/or personal contributions which you claim a tax deduction for, are reportable super contributions.  These can affect the income tests for certain offsets and deductions, repayment income, and Medicare levy surcharge.
  • While you can request as many determinations as you like, you can only request to withdraw your super amounts once. This means you won’t be able to change your release request if you change your mind or haven’t included all your nominated super funds and/or eligible contributions.
  • Your options if you don’t sign a contract in the required time frame. This is 12 months from when your first FHSS amount was released to you or your extended time frame if you’ve been granted an extension. If you don’t sign a contract in this time you'll need to re-contribute the assessable FHSS amount back into your super fund or pay the FHSS tax.

Ultimately, whether the FHSS scheme is right for you is a financial decision you need to make after careful consideration.  You may want to seek independent financial advice to help you decide if the FHSS scheme is for you.

 

Thanks, NicM.

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Hi @swhite,

 

Thanks for your post.

 

You’ve raised a few points in your post so we've split the response into sections.

 

Types of super contributions:

 

There are two types of voluntary contributions you can make into your super fund for the FHSS scheme:

  • concessional contributions, and
  • non-concessional contributions.

Concessional contributions are before tax contributions.  These include contributions you make through a salary sacrifice arrangement or personal contributions that you claim as a tax deduction  These contributions are taxed at a concessional tax rate of 15% in your super fund. Concessional contributions can help to reduce your assessable income; in the case of salary sacrifice this is because your employer withholds PAYG tax on your after salary sacrifice income. If you make personal contributions and claim a tax deduction, then the amount you claim as a deduction reduces your taxable income in your tax return.

 

Non-concessional contributions are amounts you contribute to super after tax (e.g. you deposit money from your bank account into your super). Because you've already paid tax on these contributions, they’re not taxed when they go into the super fund and they’re not taxed when they come back out.

 

Working out how much you can withdraw from the FHSS:

 

When you submit a determination request using our online services, we'll work out your maximum release amount. The maximum release amount is:

  • 100% of your eligible non-concessional contributions,
  • 85% of your eligible concessional contributions, and
  • The associated earnings on both the concessional and non-concessional contributions.

We'll calculate your associated earnings based on a specified rate - so the associated earnings we calculate may be more or less than the actual amount you earned in super fund.

 

When calculating the amount you can withdraw, there is a limit of $15,000 of eligible contributions from each financial year, with a limit of $30,000 of contributions in total. Your associated earnings aren’t included in the $30,000 limit.

 

Say for example, you contribute the following amounts into your super in the 2018/19 and 2019/20 financial years:

  • $5,000 of non-concessional contributions, and
  • $10,000 of concessional contributions.

For this example we’ll say your associated earnings are $4,000.

 

This means your total maximum release amount would be $31,000 ($27,000 of contributions plus $4,000 associated earnings).

 

The $27,000 is comprised of:

  • 100% of the non-concessional contributions ($5,000 for 2018/19 plus $5,000 for 2019/20), and
  • 85% of the concessional contributions ($8,500 for 2018/19 and $8,500 for 2019/20).

The concessional contributions are limited to 85% to take into account that they've already had 15% tax withheld from them while they were in your super fund. 

 

We’ll also calculate the tax that will be withheld from your assessable FHSS amounts. The assessable FHSS amount is the concessional contribution amount and the associated earnings.

 

In the above scenario, your assessable FHSS amount would be $21,000:

  • $8,500 concessional contributions from 2018/19
  • $8,500 concessional contributions from 2019/20, and
  • $4,000 of associated earnings

The tax rate we apply will be your marginal tax rate however you'll receive a 30% tax offset. The calculation of your marginal tax rate is only an estimate based on your previous tax returns - we can’t calculate your actual marginal tax rate until you lodge your tax return for the financial year. If you’re marginal tax rate is estimated as 39% (37% plus the Medicare levy), then the 30% tax offset will be subtracted from this amount, meaning a rate of 9% tax will be withheld from your assessable FHSS amount. If we're unable to work out your estimated marginal tax rate, we'll apply a rate of 17% (this is highest marginal rate minus the 30% tax offset).

 

So in the above example, the tax rate of 9% would be applied to the $21,000 which equals $1890.

 

You’ll need to make sure all your contributions have been made to the fund before you request your determination as you’ll need to provide the date the contribution was made.  If you’re salary sacrificing, this date may be different to when the amount was deducted from your salary and wages.

 

You can request multiple determinations from us so you can see how much you're able to withdraw.


Requesting a withdrawal of your FHSS amounts:

 

Once you’re ready to withdraw your FHSS amounts, you’ll need to request a release. You can do this electronically through our online services.

 

Once you request a release, we’ll send a request to your nominated super fund(s) asking them to pay your requested amount to us.  When we receive the money, we’ll withhold the calculated tax and offset any outstanding Commonwealth debts you have before we pay the remainder to you. Your released  FHSS amounts won’t be offset against any HECS/HELP loan balance you have with us

 

The estimated time frame for you to receive your money is 25 business days.

 

So using the above example and assuming you don’t have any outstanding Commonwealth debts, the amount you would receive is $29,110 ($31,000 - $1890).

 

The example I’ve used is very simple but hopefully this helps clarify how the maximum amount you can withdraw is calculated and how the tax will apply.

 

You’ll need to wait until the funds are released to you before you sign a contract to buy or build a residential property.  If you apply for your release through our online services, you’ll be able to check the progress of your release request and view the date we release your funds to you.  Once we release your funds, it may take a few days to show up in your bank account.

 

If you sign a contract before we release the funds to you, you’ll be liable to pay the FHSS tax which is a flat rate of 20% of your assessable FHSS released amount.

 

I’ve included a few other things you’ll need to consider when working out if the FHSS scheme is right for you…

  • The contributions you make to your super towards the FHSS scheme are not a new type of contribution. This means the existing contribution caps for concessional and non-concessional contributions still apply. You can find more information about the contributions caps on our website.
  • If you’re considering entering a salary sacrifice arrangement, there are a few things you need to consider, including the impact your salary sacrificed amount has on the compulsory super guarantee (SG) contributions your employer needs to pay. There is also no time frame under the SG legislation as to when your employer needs to pay your salary sacrifice amounts which are above the compulsory SG contributions.
  • Salary sacrifice contributions you make which are above the compulsory SG contributions and/or personal contributions which you claim a tax deduction for, are reportable super contributions.  These can affect the income tests for certain offsets and deductions, repayment income, and Medicare levy surcharge.
  • While you can request as many determinations as you like, you can only request to withdraw your super amounts once. This means you won’t be able to change your release request if you change your mind or haven’t included all your nominated super funds and/or eligible contributions.
  • Your options if you don’t sign a contract in the required time frame. This is 12 months from when your first FHSS amount was released to you or your extended time frame if you’ve been granted an extension. If you don’t sign a contract in this time you'll need to re-contribute the assessable FHSS amount back into your super fund or pay the FHSS tax.

Ultimately, whether the FHSS scheme is right for you is a financial decision you need to make after careful consideration.  You may want to seek independent financial advice to help you decide if the FHSS scheme is for you.

 

Thanks, NicM.

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Thank you very much for the response

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Hi @NicATO ,

 

I was reading through this reply and it seems at odds with some information I found on the ATO website: https://www.ato.gov.au/Individuals/Super/Withdrawing-and-using-your-super/First-Home-Super-Saver-Sch...

 

In your reply you state:

 

You’ll need to wait until the funds are released to you before you sign a contract to buy or build a residential property.

 

 

Yet on the website, it suggests that you can sign a contract before you submit a valid request to release funds (and by implication, before the funds are released). All you would need is a determination (I think).

 

Text from https://www.ato.gov.au/Individuals/Super/Withdrawing-and-using-your-super/First-Home-Super-Saver-Sch... below:

 

You can sign your contract to purchase or construct your home either:

  • from the date you make a valid request to release your FHSS amounts
  • before making a valid request to release your FHSS amounts.

If you sign your contract to purchase or construct your home before making a valid request to release FHSS amounts, you'll need to:

  • have an FHSS determination before you sign
  • make a valid release request within 14 days of entering that contract.

 

Would you be able to let me know which is correct, or if there's something here that I've misunderstood?

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Hi @Dan-G,

 

Thanks for getting in touch!

 

The information @NicATO provided in the response was based on relevant legislation back in September 2018.

 

However, new legislative changes were made to the FHSS scheme effective 1 July 2019. These new changes are now updated on our website.

 

You can find information about changes to the FHSS scheme on our website.

 

Thanks, JodieH.

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Hi Dan and Jodie,

 

Thanks for the replies.  This is very relevant to me now as I have just submitted a determination request on Friday (yet to hear anything about and certaininly haven't received my funds in my nominated account).  And I'm currently in the thick of signing a house contract - we are still negotiating the contract of sale but I suspect will be signing in the coming days.

 

So have I done the right thing here or have I got the timing all wrong? 

 

Also on an unrelated topic, I was asked to nominate a withholding tax rate - default 9%.  I thought it was already taxed at the concessional rate (pre-tax contributions in my case)?  And when it computed the associated earnings amount - is this what the money earned whilst in super i.e. if the super unit price when up on the contribution that I get that payed out in addition to the original principle amount (minus tax)?

 

Thanks any further info would be greatly appreciated.


Regards,

Sam

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Hi @swhite,

 

Thanks for getting in touch!

 

Yes, you've done the right thing. When you're ready to receive your FHSS amounts, you need to apply to us for a FHSS determination and a release. You can sign your contract to purchase or construct your home either:

  • from the date you make a valid request to release your FHSS amounts
  • before making a valid request to release your FHSS amounts.

Depending on the types of contributions you made will determine the tax treatment of your FHSS payment. If you made concessional contributions from your pre-taxed (before tax) income, we'll withhold the appropriate amount of tax from the FHSS payment. If you made non-concessional contributions from after-tax income, no additional tax will be withheld other than tax on interest (earnings) in the fund.

 

Thanks, JodieH.

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Hi ATO

 

I understand we cannot sign a contract until the determination is made? How long does it take to receive a determination from the ATO?

 

We would like to take advantage of the tax benefits by making lump sum concessional contributions with our current savings. We are planning to bid at an auction in a couple of weeks.

 

Thanks,

 

George

 

 

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Hi @george1123,

 

When you apply for a determination through our online services it is practically instant. The determination will appear on your screen as soon as you request it.

 

Thanks, NateH

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Hi NicM, 

 

Could you please clarify that Employer compulsory contributions, such as Superannuation Guarantee (SG) contributions don’t count towards the FHSS Scheme? Only my voluntary contribution will count?

Just asking as I do have funds in my super and I am looking to buy a property soon, however, I haven't made any voluntary contributions. So, will I be eligible or not?

Alternatively, could I start making voluntary contributions now and withdraw from the FHSS  alongside my employer contributions in the near future?

 

Thanks